Inside Deloitte
State corporate income
tax update: What's
happened during the
2015 legislative sessions
by Shona Ponda, James M. McNiff, Kathleen Rudis,
Namrata Jhawer, and Dashrath Phulwary
Deloitte Tax LLP
state tax notes™
State Corporate Income Tax Update:
What’s Happened During the 2015 Legislative Sessions?
by Shona Ponda, James M. McNiff, Kathleen Rudis, Namrata Jhawer, and
Dashrath Phulwary
Shona Ponda is a senior manager in Deloitte Tax LLP’s
Washington National Tax Multistate practice. James M.
McNiff is a manager and Kathleen Rudis is a senior in
Deloitte’s Multistate Tax practice in McLean, Virginia.
Namrata Jhawer and Dashrath Phulwary are multistate tax
consultants within Deloitte Tax Services India Private Limited.
In this edition of Inside Deloitte, the authors provide an
overview of select state corporate income tax legislative
changes that have been enacted thus far during the 2015
state legislative sessions, as well as some related taxpayer
considerations.
This article does not constitute tax, legal, or other advice
from Deloitte, which assumes no responsibility regarding
assessing or advising the reader about tax, legal, or other
consequences arising from the reader’s particular situation.
The authors thank the respective Deloitte Tax Jurisdictional
Technical Leads — members of Deloitte’s Washington National Tax Multistate and Multistate Tax Controversy Services practices who are designated, jurisdiction-specific tax
technical and controversy specialists — for their contributions to this article.
Copyright 2015 Deloitte Development LLC.
All rights reserved.
On November 4, 2014, voters in 36 states chose governors, which resulted in 11 new chief executives and six
changes in party affiliation. These changes helped place state
tax policy front and center during the 2015 state legislative
season. A theme in many of the governors’ State of the State
addresses was a call for tax relief and a reduced tax burden as
a means for growing the states’ economies.1 However, these
proposed reductions were often pitted against the stark
reality that while the national economic recovery has seemingly been underway for six years, some states still faced
budget shortfalls for fiscal 2016 and, accordingly, had to
1
American Legislative Exchange Council: Center for State Fiscal
Reform, ‘‘State of the States: An Analysis of the 2015 Governors’
Addresses’’ (June 2015).
State Tax Notes, October 5, 2015
consider tax increases to meet state budget demands.2 Other
states experiencing modest revenue growth had to remain
cautious in light of growing budgetary pressure to fund areas
such as education, transportation, and infrastructure. To
this end, some governors supported raising some taxes and
fees — either as stand-alone increases or in connection with
other tax reductions.3 For example, in the continued effort
to combat the tax impact on states of perceived international
income shifting, about a dozen states — some with the
strong support of their governors — considered legislation
addressing the income and apportionment factors of some
related corporations incorporated or doing business in purported foreign ‘‘tax haven’’ jurisdictions.4 Several states
joined the bandwagon of jurisdictions offering tax amnesty
programs in an effort to meet short-term revenue-raising
goals — arguably a policy measure favored by states and
taxpayers alike.5
These activities translated into a busy year for state tax
legislative activity and numerous proposed bills addressing a
wide range of state corporate income tax issues — including
nexus, tax base, allocable versus apportionable income, apportionment, filing methods/unitary combination, tax
rates, and tax administration — some of which were enacted
2
Donald J. Boyd and Lucy Dadayan, ‘‘The Blinken Report: The
Economy Recovers While State Finances Lag,’’ The Nelson A. Rockefeller Institute of Government (June 2015).
3
Supra note 1.
4
Some examples of 2015 tax-haven-related legislative proposals
include: Ala. HB 142, 2015 Leg., Reg. Sess.; Colo. HB 1346, 70th
Gen. Assemb., 1st Reg. Sess.; Conn. HB 7061, 2015 Gen. Assemb.,
Reg. Sess.; D.C. B21-0158, Fiscal Year 2016 Budget Support Act of
2015; Fla. HB 1221, 2015 Leg., Reg. Sess.; Ky. HB 374, 2015 Leg.,
Reg. Sess.; Me. LD 341, 127th Leg., 1st Reg. Sess.; Mass. HD 1234
and SD 1699, 189th Gen. Court, Reg. Sess.; Mont. SB 167, 2015
Leg., 64th Reg. Sess.; N.H. HB 551, 2015 Leg., Reg. Sess.; Ore. HB
2099 and SB 61, 2015 Leg., Reg. Sess.; and Vt. H 489 (as passed by the
House), 2015-2016 Reg. Sess.
5
Some examples of state tax amnesty program legislation enacted
during the 2015 state legislative sessions include Ariz. SB 1471 , Laws
2015; Ind. HB 1001, Laws 2015; Kan. HB 2109, Laws 2015; Md. SB
763, Laws 2015; Mass. H 52, Laws 2015, and H 3650, Laws 2015;
Mo. HB 384, Laws 2015; Okla. HB 2236, Laws 2015; and S.C. S 526,
Laws 2015.
45
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INSIDE DELOITTE
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Alabama
While a number of touted corporate tax ‘‘loopholeclosing’’ proposals failed to pass the Alabama Legislature
during its 2015 regular session, Gov. Robert Bentley (R)
signed into law HB 49 from the 2015 first special session,
which implements a factor presence nexus standard for
business entities organized outside Alabama.7 Under the
new standard, substantial nexus with Alabama is deemed to
exist for purposes of the state business privilege tax and
financial institution excise tax when in any tax period the
property, payroll, or sales of the business in Alabama exceeds
the delineated dollar thresholds of: (i) $50,000 of property;
(ii) $50,000 of payroll; (iii) $500,000 of defined sales; or (iv)
25 percent of total property, total payroll, or total sales. HB
49 also provides that Alabama will not gain jurisdiction to
impose tax if the taxpayer is protected under P.L. 86-272,8
regardless of whether the taxpayer’s property, payroll, or
sales exceed the bright-line thresholds.
Arizona
In April Gov. Doug Ducey (R) signed into law legislation
making Arizona a reciprocal non-retaliation state and phasing in a reduction in the state general premium tax rate. HB
2440,9 which closely matches legislation enacted in other
reciprocal non-retaliation states, provides that Arizona’s retaliatory tax provisions do not apply to an insurer domiciled
6
Note that on December 19, 2014, President Obama signed into
law the Tax Increase Prevention Act of 2014, which includes a one-year
retroactive extension of many of the temporary tax deductions, credits,
and incentives that had expired effective December 31, 2013. Among
the dozens of provisions that are renewed retroactively through the end
of 2014 under the act are (i) a credit for certain research and experimentation expenses; (ii) 50 percent bonus depreciation provisions for
qualified property and the option to accelerate some alternative minimum tax credits in lieu of bonus depreciation; (iii) active financing
income exception and the controlled foreign corporation lookthrough; (iv) increased expensing limits for IRC section 179 property
and the expanded definition of section 179 property; and (v) 15-year,
straight line cost recovery provision that applies to certain leasehold,
restaurant, and retail improvements and restaurant buildings. Those
federal law changes may have a significant effect on state corporate
income taxes, depending on the state’s adoption of the IRC and each
state’s decoupling provisions.
Identifying all of the states’ coupling and decoupling developments
during 2015 is beyond the scope of this article, as are the resulting
implications of all applicable states’ statutory conformity update to the
IRC.
7
HB 49B, 2015 Leg., 1st Spec. Sess. (Ala., 2015).
8
15 U.S.C. sections 381-384.
9
HB 2440, 52nd Leg., 1st Reg. Sess. (Ariz., 2015).
in a state or foreign country that does not impose a retaliatory tax or that exempts companies domiciled in Arizona
from retaliatory tax on a reciprocal basis. Ducey also signed
HB 2568,10 which phases in a reduction of Arizona’s general
premium tax rate to 1.7 percent over the next 10 years.
Ducey signed SB 1188,11 which updated Arizona’s corporate tax code so that beginning after 2014, references to
the IRC are updated to mean the IRC as in effect on January
1, 2015, including those provisions that became effective
during 2014 with the specific adoption of all federal retroactive effective dates.
Arkansas
Arkansas Gov. Asa Hutchinson (R) signed HB 142712 on
March 24, generally updating state corporate and individual
income tax conformity to the IRC as it existed on January 1,
2015 (previously, January 2, 2013). SB 32013 was also
enacted into law, requiring the Arkansas Department of
Finance and Administration to annually report on the activities of the Multistate Tax Commission and eliminating
Arkansas’s previously created Multistate Tax Compact Advisory Committee. Also, Hutchinson signed into law SB
490,14 which made numerous tax administration changes
relating to taxpayer burden of proof, timing to report federal
income tax changes, limitation periods for refunds, transparency in tax administration, judicial relief, the rebate
period for local taxes, and the state corporate income tax
return due date.
Connecticut
During June the Connecticut General Assembly enacted
legislation that resulted in sweeping tax reform to the state’s
corporate tax regime. HB 706115 and SB 1502,16 which
were signed concurrently by Gov. Dan Malloy (D) on June
30, 2015, contain many significant changes for Connecticut
corporate taxpayers, including:
• extending the 20 percent surtax on both the 7.5 percent tax rate on the income base and the 0.31 percent
tax rate on the capital base for income years beginning
before January 1, 2018 (the surtax is reduced to 10
percent for income years beginning on or after January
1, 2018, and before January 1, 2019);
• imposing mandatory unitary taxation applicable to
income years commencing on or after January 1,
2016;17
10
HB 2568, 52nd Leg., 1st Reg. Sess. (Ariz., 2015).
SB 1188, 52nd Leg., 1st Reg. Sess. (Ariz., 2015).
12
HB 1427, 90th Leg., 1st Sess. (Ark., 2015).
13
SB 320, 90th Leg., 1st Sess. (Ark., 2015).
14
SB 490, 90th Leg., 1st Sess. (Ark., 2015).
15
HB 7061, 2015 Leg., Reg. Sess. (Conn., 2015).
16
SB 1502, 2015 Leg., 1st Spec. Sess. (Conn., 2015).
17
This effective date was specified in SB 1502, 2015 Leg., 1st Spec.
Sess. (Conn., June 2015), thus amending HB 7061, 2015 Leg., Reg.
11
(Footnote continued on next page.)
46
State Tax Notes, October 5, 2015
(C) Tax Analysts 2015. All rights reserved. Tax Analysts does not claim copyright in any public domain or third party content.
into law, while others were tabled for possible reconsideration next year. With most state legislative sessions having
come to a close for 2015, this article highlights, jurisdiction
by jurisdiction, some of the corporate income tax legislative
changes that have been enacted thus far during the 2015
legislative season.6
Inside Deloitte
Delaware
In Delaware, HB 1518 was signed into law by Gov. Jack
Markell (D) and affects captive insurance companies by
defining the term ‘‘series captive insurance company’’ for
Delaware gross premium insurance tax purposes and imposing an annual minimum aggregate tax of $3,500 for each
series captive insurance company. The new law also provided that if at least one of two or more captive insurance
companies under common ownership and control has 25
qualified individuals (that is, natural persons employed in
Delaware on a regular basis of 35 or more hours per week),
then all captive insurance companies under common ownership and control shall be taxed as though they were a single
captive insurance company. Finally, the new law increased
the maximum tax on premiums on policies or contracts of
insurance written by a captive insurance company and provided that Delaware’s insurance commissioner shall determine the amount of minimum capital and surplus for a
series captive insurance company.
District of Columbia
The District of Columbia’s Fiscal Year 2015 Budget
Support Act of 201419 became law on February 26, 2015,
and made various changes to the District’s tax laws, including a phased-in reduction of the unincorporated and incorporated business franchise tax rates; the use of single-salesfactor apportionment for all business income; a revision to
the sourcing rules for sales apportionment purposes; and the
exemption of certain investment fund income from the
unincorporated business franchise tax.
On July 27, 2015, Mayor Muriel Bowser (D) signed the
Fiscal Year 2016 Budget Support Act of 2015,20 which is
emergency legislation that expires on October 25, 2015.
The act includes an enumerated list of tax haven jurisdictions for combined reporting purposes and contains provisions for market sourcing of sales other than sales of tangible
personal property for tax years beginning after 2014. On
August 11, Bowser signed the Fiscal Year 2016 Budget
Support Act of 2015,21 which permanently included an
enumerated list of tax haven jurisdictions for combined
reporting purposes and clarified provisions for marketsourcing of sales other than sales of tangible personal property for tax years beginning after 2014.
Florida
Florida Gov. Rick Scott (R) signed HB 700922 on May
14, 2015, which modified the state’s corporate income tax
code. HB 7009 updated Florida’s corporate income tax
conformity date to the IRC as in effect on January 1, 2015,
and decoupled from federal bonus depreciation and IRC
section 179 expense deductions (to the extent that the
section 179 expense deductions exceed $128,000) for assets
placed in service during tax years ending after December 31,
2013 and before January 1, 2015.
Scott also signed HB 33-A into law, which made several
changes to Florida’s tax laws, including extending the Community Contribution Tax Credit Program, increasing funding for and changing distribution of the R&D tax credit,
and increasing the maximum contaminated site rehabilitation corporate income tax credit from $5 million to $21.6
million for fiscal 2016.23
Georgia
In Georgia, effective immediately and applicable to all
tax years beginning on or after January 1, 2014, HB 292,24
signed into law by Gov. Nathan Deal (R), generally updated
corporate income tax statutory references to the IRC as it
existed on or before January 1, 2015 (previously, January 1,
19
D.C. Act 20-0424 (B20-0750).
D.C. Act 21-0127 (B21-283).
21
D.C. Act 21-148 (B21-158).
22
HB 7009, 2015 Senate, 1st Reg. Sess. (Fla., 2015).
23
HB 33-A, 1st Spec. Sess. (Fla., 2015).
24
HB 292, 2015 Leg., 1st Reg. Sess. (Ga., 2015).
20
Sess. (Conn. 2015), which had provided that this change was to apply
to income years beginning on or after January 1, 2015.
18
HB 15, 148th Leg., 1st Reg. Sess. (Del., 2015).
State Tax Notes, October 5, 2015
47
(C) Tax Analysts 2015. All rights reserved. Tax Analysts does not claim copyright in any public domain or third party content.
• limiting the deduction of net operating losses to 50
percent of Connecticut income effective for income
years commencing on or after January 1, 2015;
• limiting the application of tax credits to 50.01 percent
of the amount of tax due (this change is effective for
income years commencing on or after January 1,
2015);
• extending the film production tax credit limitations
through June 30, 2017;
• requiring the commissioner of revenue to review the
effect of alternative methods of apportionment and
provide recommendations in a report delivered to the
Finance, Revenue, and Bonding Committee of the
General Assembly on or before February 1, 2016;
• extending the First Five Plus program through June
30, 2016, allowing the Department of Economic and
Community Development to provide flexible financial assistance in exchange for job creation and other
investments in Connecticut;
• raising the cap on the Neighborhood Assistance Act
tax credit from $5 million to $10 million per fiscal year
(this change is effective July 1, 2017); and
• raising the cap on the Urban and Industrial Site Reinvestment tax credit from $800 million to $950 million
(this change is effective July 1, 2015).
Further, HB 7061 and SB 1502 amended Connecticut’s
insurance premiums tax, hospital gross receipts tax, cigarette
tax, estate and gift tax, personal income tax, sales and use
tax, and admission tax regimes.
Inside Deloitte
Hawaii
Hawaii Gov. David Ige (D) signed SB 1133,25 which
generally updated the state’s statutory references to the IRC
and provided that for tax years beginning after December
31, 2014, references to the IRC in the state’s corporate tax
laws refer to the federal law in effect as amended as of
December 31, 2014. Another signed bill, SB 118,26 requires
a study addressing the potential effect of repealing the state
corporate income tax dividends paid deduction for real
estate investment trusts.
Idaho
In Idaho, Gov. C.L. Otter (R) signed H 77,27 which
generally conformed select references to the IRC in the
state’s tax law to the IRC in effect as of January 1, 2015.
Illinois
In February, Illinois Gov. Bruce Rauner (R) signed into
law SB 3366,28 which was adopted in response to a 2014
state appeals court decision involving a dispute over how
insurance companies incorporated or organized outside
Illinois but doing business in Illinois should treat their
Illinois income tax for purposes of the Illinois retaliatory
tax. SB 3366, effective retroactively to January 9, 2015,
clarified that foreign insurance companies must use the cash
basis method to calculate their income tax when determining ‘‘penalties, fees, charges, or taxes’’ for purposes of the
retaliatory tax.
Rauner signed HB 308629 to amend the Illinois Income
Tax Act as it relates to defining a captive real estate investment trust. The new law provides that for tax years ending
on or after August 16, 2007, the voting power or value of the
beneficial interest or shares of a REIT that is held in a
segregated asset account of a life insurance company for the
benefit of persons or entities who are immune or exempt
from federal income taxes is not taken into account for
purposes of determining if a REIT is a captive REIT.
Indiana
Indiana Gov. Mike Pence (R) signed into law SB 44130
and HB 1472,31 which collectively made numerous modifications to the state’s corporate tax provisions. SB 441
eliminated Indiana’s sales factor throwback rule for purposes of computing the state adjusted gross income tax. SB
441 also modified Indiana’s intercompany intangible and
interest expense addback statute to expand the addback
requirement to include all intangible expenses and all directly related interest expenses. Further, SB 441 amended
Indiana’s intercompany expense addback statute by allowing an intercompany expense deduction if the related-party
recipient receives an item of income that corresponds to the
directly related interest expenses and the recipient is subject
to Indiana’s financial institutions tax (FIT), files a FIT
return, and apportions the items of income that correspond
to the intangible expenses and the directly related interest
expenses in accordance with Indiana FIT statutes. Finally,
SB 441 amended the definition of business income to mean
‘‘all income that is apportionable to the state under the
Constitution of the United States.’’ SB 441 likewise extended the sunset date for Indiana’s venture capital investment tax credit and Hoosier business investment tax credit
from January 1, 2017 to January 1, 2021.
HB 1472, effective retroactively to January 1, 2015,
generally updated Indiana’s corporate tax statutory references to the IRC to refer to the federal law as in effect on
January 1, 2015 (previously, January 1, 2013). For tax years
ending before January 1, 2013, the law continues to decouple from some IRC provisions. HB 1472 also increased
from 60 days to 90 days the period to appeal to the Indiana
Tax Court a letter of finding or a claim denial from the state
Department of Revenue. Also, language was added regarding what constitutes a modification to a federal income tax
return, which triggers a reporting requirement to the state.
Iowa
In Iowa, Gov. Terry Branstad (R) signed SF 479,32 retroactive to tax years beginning on or after January 1, 2015. SF
479 provided that national broadcasting companies are
subject to Iowa corporate income tax based on their broadcasting income attributable to business in the state as defined under the new law. Underlying fiscal notes to this
legislation explain that it provided for the imposition and
calculation of Iowa corporate income tax on national broadcast companies based on economic nexus principles under
Iowa case law.33 Also, Branstad signed SF 12634 generally
updating state income tax code references to the IRC as
30
25
SB 1133, 28th Leg., 1st Reg. Sess. (Haw., 2015).
26
SB 118, 28th Leg., 1st Reg. Sess. (Haw., 2015).
27
H 77, 63rd Leg., 1st Reg. Sess. (Idaho, 2015).
28
SB 3366, 98th Leg., 1st Reg. Sess. (Ill., 2015).
29
HB 3086, 99th Leg., 1st Reg. Sess. (Ill., 2015).
48
SB 441, 2015 Leg., 1st Reg. Sess. (Ind., 2015).
HB 1472, 2015 Leg., 1st Reg. Sess. (Ind., 2015).
32
SF 479, 86th Leg., 1st Reg. Sess. (Iowa, 2015).
33
Fiscal Note to SF 479, 86th Leg., 1st Reg. Sess. (Iowa, 2015),
Iowa Legislative Services Agency, Mar. 26, 2015.
34
SF 126, 86 Leg., 1st Reg. Sess. (Iowa, 2015).
31
State Tax Notes, October 5, 2015
(C) Tax Analysts 2015. All rights reserved. Tax Analysts does not claim copyright in any public domain or third party content.
2014). Georgia continues to decouple from some federal
income tax provisions, including those involving the IRC
section 179 deduction, IRC section 168(k) bonus depreciation, the IRC section 199 deduction for income attributable
to domestic production activities, and certain federal NOL
carryback provisions.
Inside Deloitte
Louisiana
In July, Louisiana Gov. Bobby Jindal (R) signed HB
218,35 HB 624,36 HB 629,37 and HB 805,38 which collectively reduced some tax benefits and credits as well as
suspended some exemptions for taxpayers in the state.
HB 218 repealed the three-year NOL carryback provisions and increased the carryforward period from 15 years to
20 years. HB 218 became effective beginning with any
return filed on or after July 1, 2015, regardless of the tax year
to which the return relates. HB 624 reduced various income
exclusions by 28 percent, including exclusions applicable to
dividend income, funds received by a corporation operating
a public transportation system, some dividend income from
Louisiana banks, income tax refunds, and some hurricane
recovery benefits. Also, HB 624 reduced some deductions
by 28 percent, including deductions applicable to the allowable depletion and expenses disallowed by IRC section
280C. Further, HB 624 reduced the amount of NOL that a
taxpayer can use to offset current-year income. HB 629
reduced various tax credits by 28 percent. These law changes
became effective for any return filed on or after July 1, 2015,
regardless of the tax year to which the return relates. However, these changes will sunset on June 30, 2018, and the law
will revert to the prior applicable law.
Additionally, HB 805 changed the inventory tax credit
from a refundable credit to one in which 75 percent of excess
credit amounts that exceed taxpayer liability will be refundable and 25 percent of the excess credit may be carried
forward for up to five years. HB 805 also changed the R&D
tax credit from a refundable credit to one in which the credit
amounts may be carried forward for up to five years.
Maine
On February 12, Maine Gov. Paul LePage (R) signed
Legislative Document 13839 to update the state’s income tax
conformity to the federal income tax code with some exceptions such as bonus depreciation. Applicable to tax years
beginning on or after January 1, 2014, and to any prior tax
years as specifically provided by the IRC of 1986 and
amendments as of December 31, 2014, LD 138 generally
conformed state corporate income tax references to the IRC
as in effect as of December 31, 2014 (previously, December
31, 2013). However, LD 138 decoupled from the federal
bonus depreciation permitted for tax years beginning in
2014.
Massachusetts
Massachusetts Gov. Charlie Baker (R) signed H 3671,40
which postponed the ASC 740 (formerly known as Statement 109, ‘‘Accounting for Income Taxes,’’ or FAS 109)
deduction. The deduction was scheduled to take effect with
a combined group’s tax year that begins in 2016. Under HB
3671, the deduction will start with a combined group’s tax
year that begins in 2021. The new law also revised the period
over which the deduction may be claimed from the original
seven-year period to 30 years.
Minnesota
Minnesota Gov. Mark Dayton (DFL) signed HF 6,41
which retroactively conformed the state’s corporate franchise tax to most federal income tax changes enacted as of
December 31, 2014, with some exceptions, including Minnesota’s statutory modifications involving bonus depreciation and IRC section 199 deductions.
Missouri
Missouri Gov. Jay Nixon (D) signed SB 1942 in May,
which clarified that the optional single-sales-factor apportionment method applies to sales other than the sale of
tangible property and established market-based sourcing
rules for such sales. Before enactment of SB 19, there was
uncertainty regarding the proper method for sourcing sales
other than the sale of tangible property under the optional
single-sales-factor method. SB 19 provided specific guidance depending on the nature of the sales transaction —
including market-based sourcing rules for specified transactions involving intangible property, such as certain licensing
fees, franchise fees, and royalties received. If the state of
assignment cannot be determined or reasonably approximated under these new sourcing rules, the sales are excluded
from the denominator of the sales factor. Under the Missouri Constitution, SB 19 became effective August 28,
2015, which was 90 days after the adjournment of the
legislative session on May 30, 2015.
Nevada
In June, Nevada Gov. Brian Sandoval (R) signed SB
483,43 which enacted a new commerce tax effective July 1,
2015, that is applicable to business entities with Nevadasitused gross revenue exceeding $4 million in a tax year. If a
business entity’s Nevada gross revenue exceeds $4 million,
35
HB 218, 2015 Leg., 1st Reg. Sess. (La., 2015).
HB 624, 2015 Leg., 1st Reg. Sess. (La., 2015).
37
HB 629, 2015 Leg., 1st Reg. Sess. (La., 2015).
38
HB 805, 2015 Leg., 1st Reg. Sess. (La., 2015).
39
LD 138, 127th Leg., 1st Reg. Sess. (Me., 2015).
36
State Tax Notes, October 5, 2015
40
H 3671, 189th Leg., 1st Reg. Sess. (Mass., 2015).
HF 6, 89th Leg., 1st Spec. Sess. (Minn., 2015).
42
SB 19, 98th Leg., 1st Reg. Sess. (Mo., 2015).
43
SB 483, 78th Leg., 1st Reg. Sess. (Nev., 2015).
41
49
(C) Tax Analysts 2015. All rights reserved. Tax Analysts does not claim copyright in any public domain or third party content.
amended through January 1, 2015 (previously January 1,
2014), applicable retroactively for tax years beginning on or
after January 1, 2014, but decoupling from certain federal
bonus depreciation provisions.
Inside Deloitte
50
• receipts from some hedging transactions and loan
repayments;
• some proceeds from insurance policies, litigation damages, bad debts expensed, customer returns and refunds, and cash discounts;
• some amounts realized from the sales of an account
receivable; and
• some income from a passive entity.
The resulting adjusted gross revenue of the business
entity from real property and tangible personal property is
then sitused to Nevada using what is largely market-based
sourcing. Adjusted gross revenue from services is sitused to
Nevada ‘‘in the proportion that the purchaser’s benefit in
this State . . . bears to the purchaser’s benefit everywhere
with respect to . . . [the] purchased [services].’’44
If the business entity’s resulting Nevada gross revenue
exceeds $4 million, the excess is taxed at different rates
depending on the industry in which the business entity is
primarily engaged. A business entity is considered primarily
engaged in the business category in which the highest percentage of its Nevada gross revenue is generated. There are
26 business categories and rates that correspond to various
North American Industry Classification System codes.
SB 483 also amended the Nevada tax on financial institutions and the business tax, both of which are based on
payroll. Those amendments included the allowance of a
credit against payroll-based taxes equal to 50 percent of the
commerce tax paid by the employer in the preceding tax
year. The credit may be used for any of the four calendar
quarters immediately following the end of the tax year for
which the commerce tax was paid.
SB 483 also amended the Nevada business tax based on
payroll by increasing the existing tax rate on general businesses from 1.17 percent of total wages in excess of $85,000
paid by the employer each calendar quarter to 1.475 percent
of total wages in excess of $50,000 paid by the employer
each calendar quarter. Finally, SB 483 required a reduction
in the rate of tax on financial institutions and the business
tax to the extent that the total revenue collected by Nevada
for these taxes and the commerce tax exceeds certain thresholds.
New Hampshire
In New Hampshire, Gov. Margaret Hassan (D) signed
SB 9,45 which will reduce New Hampshire’s business profits
tax from 8.5 percent to 8.2 percent, and its business enterprise tax from 0.75 percent to 0.72 percent, for tax periods
ending on or after December 31, 2016. This legislation
includes further business profits tax and business enterprise
tax rate reductions that would apply for tax periods ending
on or after December 31, 2018, if specified combined
44
SB 483, 78th Leg., 1st Reg. Sess. (Nev., 2015).
SB 9, 164th Leg., 1st Reg. Sess. (N.H., 2015)
45
State Tax Notes, October 5, 2015
(C) Tax Analysts 2015. All rights reserved. Tax Analysts does not claim copyright in any public domain or third party content.
the excess is subject to tax at various rates that depend on the
industry in which the business entity is primarily engaged.
The new commerce tax is imposed on Nevada gross
revenue, which is determined starting with the total gross
revenue of the business entity, less permitted deductions,
and situsing the resulting amount based on applicable
sourcing rules. Gross revenue is defined as ‘‘the total amount
realized by a business entity from engaging in business in
this State, without deduction for the cost of goods sold or
other expenses incurred, that contributes to the production
of gross income.’’ Gross revenue does not include ‘‘amounts
realized from the sale, exchange, disposition or other grant
of the right to use trademarks, trade names, patents, copyrights and similar intellectual property’’; the ‘‘value of goods
or services provided to a customer on a complimentary
basis’’; cash discounts taken by a customer; amounts realized
from transactions specified in IRC sections 118, 331, 332,
336, 337, 338, 351, 355, 368, 721, 731, 1031, or 1033;
amounts indirectly realized from a reduction of an expense
or deduction; the value of deductible donations (under IRC
section 170(c)) to certain nonprofit organizations; and
amounts not considered revenue under generally accepted
accounting principles.
SB 483 provided various deductions from gross revenue,
including:
• dividends and interest received on federal or Nevada
(or political subdivisions thereof ) bonds or securities;
• revenue amounts used to calculate certain industryspecific taxes in the gaming and mining industries;
• an amount equal to the excise tax paid on liquor for
businesses required to pay liquor taxes under Nev. Rev.
Stat. Ch. 369;
• certain amounts related to business entities required to
pay insurance fees and taxes under Nev. Rev. Stat. Ch.
680B;
• the amount of the premiums used to calculate tax
imposed under Nev. Rev. Stat. section 694C.450
(‘‘Captive Insurers’’) and section 685A.180 (‘‘Nonadmitted Insurance’’);
• some payments received by healthcare providers and
healthcare institutions;
• some payments received by employee leasing companies;
• passthrough revenue received by a business, including
revenue received by a business entity that is part of an
affiliated group from another member of the affiliated
group;
• the tax basis of securities and loans sold, as determined
for federal income taxation;
• interest other than interest on credit sales;
• dividends and distributions from corporations and
distributive receipts and income from passthrough
entities;
• receipts for the sale, exchange, or other disposition of
an asset described in IRC sections 1221 or 1231;
Inside Deloitte
New Mexico
In New Mexico, Gov. Susana Martinez (R) signed HB
2a,46 making numerous changes to the state’s corporate
income, corporate franchise, and personal income tax laws,
including changes affecting the:
• sales factor for corporations headquartered in New
Mexico;
• due date for electronically filed returns and payments;
• technology jobs credit;
• R&D small business credit;
• angel investment credit; and
• unreimbursed medical care expense deduction.
Also, the governor signed into law SB 356,47 which
established the Administrative Hearings Office (AHO) for
tax-related disputes. SB 356 provided that, effective July 1,
2015, the AHO will function under the New Mexico Department of Finance and Administration and operate independently from the New Mexico Taxation and Revenue
Department, replacing the latter’s Hearings Bureau. The
legislation also provided that the AHO will be headed by a
chief hearing officer, who will be appointed by the governor
on recommendation of a selection committee, with the
current chief hearing officer of the hearings bureau acting as
the interim chief hearing officer for the new AHO.
New York
On April 13, New York Gov. Andrew Cuomo (D) signed
into law S 2009B/A 3009B and S 2006B/A 3006B, as part
of the 2015-2016 state budget.48 That legislation made
technical corrections and other revisions to the New York
state tax reform provisions enacted in 2014. Those law
changes are effective as if originally enacted with the 2014
tax reforms, which generally pertained to tax years beginning on or after January 1, 2015.
The more significant technical corrections and other
revisions to the New York state tax reform provisions enacted in 2014 include:
• redefining the definition of investment capital as investment in stock that meets five criteria;
• removing the provision stating that for purposes of
determining the requisite holding period of a security
to qualify as investment capital, the commissioner of
the New York Department of Taxation and Finance
46
HB 2a, 52nd Leg., 1st Spec. Sess. (N.M., 2015).
SB 356, 52nd Leg., 1st Reg. Sess. (N.M., 2015).
48
Part T, Chapter 59, Laws of 2015; Part BB, Chapter 56, Laws of
2015.
47
State Tax Notes, October 5, 2015
•
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•
•
•
•
•
•
would take into account offsetting positions the taxpayer takes in such security or similar securities;
conforming the related statute addressing the investment capital holding period requirement to provide
that if a taxpayer acquires stock that is a capital asset
under IRC section 1221 during the tax year and owns
that stock on the last day of the tax year, it will be
presumed, solely for purposes of determining whether
that stock should be classified as investment capital
after it is acquired, that the taxpayer held that stock for
more than one year;
removing the subtraction of hedging losses and expenses from the computation of nontaxable investment income;
adding a limitation on investment income so that if
the taxpayer’s investment income determined without
regard to attributed interest deductions comprises
more than 8 percent of the taxpayer’s entire net income, investment income determined without regard
to such interest deductions cannot exceed 8 percent of
the taxpayer’s entire net income (determined on a
combined group basis when applicable);
deleting a provision that permitted the exclusion from
entire net income of a New York City refund or credit
relating to the New York state stock transfer tax;
clarifying that for purposes of computing the residential and small business loan subtraction modification
for certain community banks and small thrifts, the $8
billion asset qualifying test for a combined group
applies if the taxpayer is in a combined report and the
assets of the combined group do not exceed $8 billion;
and clarifying generally that the modifications for
some community banks and small thrifts do not reduce the numerator and denominator of the apportionment fraction;
clarifying that only unitary group members that meet
the ownership test under Article 9-A (more than 50
percent voting power ownership) are considered in
applying the aggregate bright-line economic nexus
tests (in other words, only the New York receipts of
$10,000 or more of unitary group members will be
aggregated to determine whether the $1 million or
more bright-line nexus threshold is met);
clarifying that a non-U.S. corporation qualifying for
New York’s self-trading exemption will not be deemed
to be subject to the bright-line economic nexus rules if
its activities are limited to self-trading;
clarifying that for purposes of qualifying as a New York
manufacturer (for a 0 percent tax rate on the business
income base), a combined group filing a combined
report must meet the ‘‘principally engaged’’ test on a
combined basis;
limiting the type of New York property required to
qualify as a New York manufacturer (for income tax,
capital tax, and fixed dollar minimum tax purposes) to
New York ITC property that is ‘‘principally used by the
51
(C) Tax Analysts 2015. All rights reserved. Tax Analysts does not claim copyright in any public domain or third party content.
unrestricted general and education trust fund revenue collection levels for the biennium ending June 30, 2017, are
met. If such revenue levels are met, the business profits tax
rate will be further reduced to 7.9 percent, and the business
enterprise tax rate would be further reduced to 0.675 percent, for tax periods ending on or after December 31, 2018.
Inside Deloitte
•
•
•
•
New York City
On April 13, Cuomo signed S 4610A/A 6721A,49 which
provided for broad-based tax reform of the New York City
corporate tax regime for tax years beginning on or after
January 1, 2015. That legislation was intended to mirror the
recent New York state tax reform provisions.
The more significant changes to the city’s corporate tax
structure, which are effective for tax years beginning on or
after January 1, 2015, include:
• merging the bank tax and corporate franchise tax for
large corporations (C corporations);
• imposing a 9 percent income tax rate on financial
corporations;
• adopting a limited economic nexus concept for corporations that issue credit cards;
49
Part D, Chapter 60, Laws of 2015.
52
• adopting general customer-based (market) sourcing of
receipts and specific sourcing rules for digital products
and financial service receipts;
• maintaining the schedule to phase in single-salesfactor apportionment by 2018 but offering a one-time
election for taxpayers/combined groups with $50 million or less of New York City receipts to retain the
2017 apportionment factor weighting (93 percent receipts, 3.5 percent payroll, 3.5 percent property);
• limiting what constitutes investment capital and investment income and modifying existing expense attribution rules so that only interest expense attributable to nontaxable investment or exempt income is
subject to disallowance;
• changing the starting point for computing New York
City taxable income for alien (non-U.S.) corporations
with New York City nexus to federal effectively connected income determined without regard to tax treaties;
• changing the NOL provisions from a pre-apportioned
to a post-apportioned computation;
• providing a three-year carryback for NOLs incurred in
post-reform tax years, provided that no NOL can be
carried back to a tax year beginning before January 1,
2015;
• adopting full water’s-edge unitary combined reporting
with a greater than 50 percent ownership test and an
election to permit combined filing for certain commonly owned groups with a seven-year lock-in period;
• reducing the rate from 8.85 percent to 6.5 percent for
qualifying non-manufacturers with less than $1 million of allocated business income;
• reducing the rate from 8.85 percent to 4.425 percent
for qualifying manufacturers with less than $10 million of allocated business income;
• retaining the alternative tax base on capital and increasing the tax cap from $1 million to $10 million;
• eliminating the additional tax on subsidiary capital
and eliminating most exclusions for income from subsidiaries while retaining an exemption for dividends
and CFC income (defined by reference to IRC section
951(a)) from unitary subsidiaries;
• eliminating the alternative tax base equal to 8.85 percent on 15 percent of the excess of (a) net income plus
the amount of salaries or other compensation paid to
any person, including an officer, who at any time
during the tax year owned more than 5 percent of the
taxpayer’s issued capital stock over (b) a $40,000 exemption;
• increasing the cap on the alternative fixed-dollar minimum tax to $200,000 for taxpayers with New York
City gross receipts more than $1 billion;
• permitting New York City or taxpayers to adjust the
apportionment of income or capital on which the
taxpayer’s return or any additional assessment was
based when an assessment is made or a refund is
claimed during the extended statute of limitations
State Tax Notes, October 5, 2015
(C) Tax Analysts 2015. All rights reserved. Tax Analysts does not claim copyright in any public domain or third party content.
•
taxpayer in the production of goods by manufacturing, processing, assembling, refining, mining, extracting, farming, agriculture, horticulture, floriculture,
viticulture or commercial fishing’’ whereas the requirement enacted in 2014 had been satisfied with any New
York ITC property (such as R&D property);
establishing a capital base rate of 0.132 percent for tax
years beginning in 2015 for qualified New York manufacturers and qualified emerging technology companies (QETCs); adding new fixed-dollar minimum
tables for S corporations that are qualified New York
manufacturers or QETCs; and adding that regarding
qualified New York manufacturers, the fixed-dollar
minimum tables apply in the case of a combined
report only if the combined group satisfies the requirements to be a qualified New York manufacturer;
clarifying that the deduction related to pre-2015 net
operating losses (the prior net operating loss conversion (PNOLC) subtraction) can be claimed only until
the calculated pool of pre-2015 NOLs is exhausted
and that, except when the taxpayer elects to use its
entire pool of pre-2015 NOLs in 2015 and 2016 (as
elected on its first return for the 2015 tax year), the
taxpayer may carry forward the PNOLC subtraction
pool for no longer than 20 tax years or until the 2035
tax year, whichever comes first;
amending certain apportionment provisions;
eliminating the requirement that the designated agent
of a combined group, a taxpayer that acts on behalf of
the members of the group relating to the combined
report, must be the parent corporation; and
clarifying that the commonly owned group election
(permitting qualifying nonunitary groups to file a
combined return) is made on a timely filed return of
the combined group, determined with regard to extensions.
Inside Deloitte
North Carolina
North Carolina Gov. Pat McCrory (R) signed SB 2050 to
update corporate income tax conformity with the IRC as of
January 1, 2015. However, the law also provided that any
amendments to the IRC enacted after December 31, 2013,
that increase North Carolina taxable income for the 2014
tax year become effective for tax years beginning on or after
January 1, 2015.
McCrory also announced that final budget figures indicate that revenue has met the statutory trigger required for a
1 percent reduction in the state corporate income tax rate
effective January 1, 2016.51 Also, after months of debate,
McCrory signed HB 97,52 which provided numerous state
tax law modifications, including:
• a three-year phase-in of single-sales-factor apportionment, commencing with tax years beginning on or
after January 1, 2016;
• an informational reporting requirement for certain
taxpayers reflecting the taxpayer’s calculation of its tax
year 2014 sales factor using market-based sourcing;
• an intercompany interest expense addback adjustment;
• revisions to the corporate income tax rate reduction
statutory trigger; and
• various franchise tax capital base changes, including a
new ‘‘net worth’’ tax base, expansion of the affiliated
indebtedness adjustment relative to this new base, and
a minimum tax increase.
North Dakota
In April, North Dakota Gov. Jack Dalrymple (R) signed
SB 2349,53 which reduces the state’s corporate income tax
rate by 5 percent. The new rates for the corporate income tax
50
SB 20, 2015 Leg., 1st Reg. Sess. (N.C., 2015).
Press Release: ‘‘Governor McCrory Praises $445 Million Revenue
Surplus,’’ N.C. Office of the Governor (July 28, 2015).
52
HB 97, 2015 Leg., 1st Reg. Sess. (N.C., 2015). Note that most
of the tax provisions in HB 97, with the exception of certain sales tax
changes, are set to automatically be repealed on January 1, 2016, if HB
117, 2015 Leg., 1st Reg. Sess. (N.C., 2015), and HB 943 2015 Leg.,
1st Reg. Sess. (N.C., 2015), are not also ratified and signed into law.
53
SB 2349, 64th Leg., 1st Reg. Sess. (N.D., 2015).
51
State Tax Notes, October 5, 2015
will be 1.41 percent on the first $25,000 of taxable income,
3.55 percent on the next $25,000, and 4.31 percent on
amounts over $50,000.
Also, Dalrymple signed SB 2292,54 which will phase in a
single-sales-factor election for apportioning business income and eliminate the elective apportionment formula
under North Dakota’s adoption of the Multistate Tax Compact. Specifically, for the first two tax years beginning after
December 31, 2015, SB 2292 allows a taxpayer that is not a
passthrough entity to make an alternative apportionment
election to apportion business income using a 50 percentweighted sales factor. For the tax year beginning after December 31, 2017, the weight of the elective sales factor will
increase to 75 percent and then to 100 percent for tax years
beginning after December 31, 2018. The alternative apportionment election must be made on an originally filed
return and is applicable for all companies in a unitary group
and for all companies filing a consolidated North Dakota
return. The new law also amended North Dakota’s version
of the Multistate Tax Compact to delete the Article III
election provisions, the Article IV equally weighted threefactor apportionment formula, and the Article IX arbitration section.
Ohio
Ohio Gov. John Kasich (R) signed HB 1955 to update
Ohio’s corporate tax conformity to the IRC. Specifically,
HB 19 incorporated IRC changes made since March 22,
2013, into Ohio’s corporate tax laws and permitted a taxpayer whose tax year ends after that date, but before the
effective date of these incorporated changes, to elect to apply
the IRC as it existed for that tax year. Ohio now generally
adopts the changes to the IRC enacted under the federal Tax
Increase Prevention Act of 2014 on December 19, 2014.
However, Ohio continues to decouple from certain federal
income tax provisions, including those involving the IRC
section 179 deduction and IRC section 168(k) bonus depreciation.
Another bill signed into law, Substitute HB 64,56 clarified that production credit associations and agricultural
credit associations are exempt from Ohio’s financial institutions tax. Taxpayers not subject to the financial institutions
tax are subject to the commercial activity tax unless otherwise excluded. HB 64 also provided for several new and
revised municipal income tax provisions, which will generally apply to tax years beginning on or after January 1, 2016.
The changes include permitting a publicly traded partnership to elect to be taxed as a C corporation for municipal
income tax purposes and changing the annual return filing
54
SB 2292, 64th Leg., 1st Reg. Sess. (N.D., 2015).
HB 19, 131st Leg., 1st Reg. Sess. (Ohio, 2015).
56
Sub. HB 64, 131st Leg., 1st Reg. Sess. (Ohio, 2015).
55
53
(C) Tax Analysts 2015. All rights reserved. Tax Analysts does not claim copyright in any public domain or third party content.
applicable in the event of a New York state change to
income (or in some other situations), generally to the
extent based on the New York state change to income;
and
• making the following credits available under the newly
created subchapter 3-A under Title 11, Chapter 6,
section 1 of the NYC Administrative Code: New York
City relocation and employment assistance program
(REAP) credit, the Lower Manhattan REAP credit,
the industrial business zone tax credit, and the New
York City biotechnology credit.
Inside Deloitte
Oregon
Oregon Gov. Kate Brown (D) signed into law SB 61,57
which updated Oregon’s list of tax haven jurisdictions and
confirmed that taxpayers may petition for alternate apportionment. Specifically, SB 61 added Guatemala and Trinidad and Tobago; removed Monaco; and replaced the Netherland Antilles, post-dissolution, with corresponding
jurisdictions of Bonaire, Sint Eustatius, Sabo, Curacao, and
Sint Maarten to the tax haven list. Also, SB 61 incorporated
Oregon Revenue Statute section 314.667, which allows
both taxpayers and the state to apply a different apportionment method if Oregon’s apportionment provisions do not
fairly reflect the extent of the taxpayer’s activity in the state.
Brown also signed into law SB 63,58 which updated Oregon’s corporate tax statutory references to the IRC as it
existed on December 31, 2014 (previously, December 31,
2013), applicable ‘‘to transactions or activities occurring on
or after January 1, 2015, in tax years beginning on or after
January 1, 2015.’’ Note that even with this new law, Oregon
continues to have ‘‘rolling conformity’’ regarding the definition of ‘‘taxable income.’’ Lastly, HB 2171, which was
signed into law in July, essentially provided that for tax years
beginning on or after January 1, 2015 and before January 1,
2021, Oregon tax credits may not be used to offset or reduce
Oregon’s corporate minimum tax. This limitation is removed for tax years beginning on or after January 1, 2021.59
South Carolina
South Carolina Gov. Nikki Haley (R) signed S 39760 to
generally update the state’s corporate tax statutory references to the IRC, referring to the federal law in effect as
amended through December 31, 2014. The new law also
provided that if IRC sections adopted by South Carolina,
which expired or portions thereof expired on December 31,
2014, are extended but otherwise not amended, these sections or portions thereof are also extended for South Carolina income tax purposes.
South Dakota
South Dakota Gov. Dennis Daugaard (R) signed SB
19,61 which updated the state’s statutory references to the
IRC as it existed from January 1, 2014, to January 1, 2015,
for state financial institution/bank franchise tax purposes.
Texas
Texas Gov. Greg Abbott (R) recently signed HB 32,63
HB 3230,64 and HB 2896,65 which amended Texas’s franchise tax rates, the rehabilitation of certified historic structures credit, and the broadcast apportionment rules.
HB 32 reduced the franchise tax rate from 1 percent to
0.75 percent of taxable margin for all taxpayers not primarily engaged in retail or wholesale trade and not filing an ‘‘EZ
computation report.’’ For taxpayers engaged in retail or
wholesale trade, HB 32 reduced the franchise tax rate from
0.5 percent to 0.375 percent of taxable margin. HB 32 also
expanded the eligibility to file the franchise tax EZ computation report.
HB 3230 modified the rules for taxpayers electing the
rehabilitation of certified historic structures credit by
amending the definition of eligible costs and expenses to
clarify that a nonprofit corporation exempt under Texas Tax
Code section 171.063 may include eligible costs and expenses incurred when determining the tax credit.
Finally, HB 2896 updated how broadcasters apportion
their taxable margin. Specifically, the legislation provided
that a taxable entity that is a broadcaster shall include in the
numerator of the apportionment factor receipts arising from
licensing income from broadcasting or otherwise distributing film programming by any means only if the legal domicile of the broadcaster’s customer is in Texas. Further, the
new law defined broadcaster, customer, film programming,
and programming.
Utah
Utah Gov. Gary R. Herbert (R) signed SB 100166 from
the 2015 first special session, which expanded provisions
related to Utah’s credit against or a refund of an overpayment of state corporate franchise or income taxes under state
57
62
58
63
SB 61, 78th Leg., 1st Reg. Sess. (Or., 2015).
SB 63, 78th Leg., 1st Reg. Sess. (Or., 2015).
59
HB 2171, 78th Leg., 1st Reg. Sess. (Or., 2015).
60
S 397, 121st Leg., 1st Reg. Sess. (S.C., 2015).
61
SB 19, 2015 Leg., 1st Reg. Sess. (S.D., 2015).
54
Tennessee
Tennessee Gov. Bill Haslam (R) signed HB 0644.62 HB
0644 included numerous modifications to state law, including the adoption of economic nexus thresholds for the business and the franchise and excise taxes, replacement of the
apportionment formula double-weighted sales factor with a
triple-weighted sales factor for calculating the franchise and
excise tax, and amendments to the excise tax deduction for
intangible expenses paid to an affiliate.The law also provided
for market-based sourcing for sales other than the sale of
tangible personal property and introduced an elective apportionment calculation for high-volume sellers with distribution centers in Tennessee.
HB 0644, 109th Leg., 1st Reg. Sess. (Tenn., 2015).
HB 32, 84th Leg., 1st Reg. Sess. (Tex. 2015).
64
HB 3230, 84th Leg., 1st Reg. Sess. (Tex. 2015).
65
HB 2896, 84th Leg., 1st Reg. Sess. (Tex. 2015).
66
SB 1001, 2015 Leg., 1st Spec. Sess. (Utah 2015).
State Tax Notes, October 5, 2015
(C) Tax Analysts 2015. All rights reserved. Tax Analysts does not claim copyright in any public domain or third party content.
deadline for municipal income taxpayers that are not individuals to the 15th day of the fourth month following the
end of the taxpayer’s tax year.
Inside Deloitte
Vermont
Vermont Gov. Peter Shumlin (D) signed H 489,67 which
updated Vermont’s corporate income tax conformity to the
IRC so that the state generally conforms to the IRC as in
effect for the 2014 tax year, applicable to post-2013 tax
years.
Virginia
Virginia Gov. Terry McAuliffe (D) signed HB 1400,68 SB
1142,69 and SB 1044.70
Applicable retroactively for tax years beginning on or
after January 1, 2004, Virginia’s HB 1400 included noncodified provisions limiting the subject to tax statutory
exception to the state’s intercompany intangible expense
addback statute — regarding income that is subject to a tax
based on or measured by net income or capital imposed by
Virginia, another state, or a foreign government — to the
portion of intercompany expense payments to the related
member that corresponds to the portion of the related
member’s income where it has sufficient nexus to be taxed
based on or measured by net income or capital in other
states on a post-apportionment basis.
The bill also included non-codified provisions that limit
the unrelated party safe harbor statutory exception to Virginia’s intercompany intangible expense addback statute to
the portion of income derived from licensing agreements for
which the rates and terms are comparable to the rates and
terms of agreements that the related member has entered
into with unrelated entities. These same non-codified provisions were also in state budget bills enacted last year, and
thus they were essentially continued with this bill.
SB 1142 required certain qualifying taxpayers entering
into a memorandum of understanding with the Virginia
Economic Development Partnership Authority, to make a
new capital investment of at least $150 million in an enterprise data center in Virginia on or after July 1, 2015, to use
a phased-in single-sales-factor apportionment formula in
computing their state corporate income tax liability.
Finally, SB 1044 generally updated Virginia’s corporate
income tax conformity to the IRC as it existed on December
31, 2014 (previously, January 2, 2013). SB 1044 did not
alter Virginia’s decoupling from certain federal provisions,
including the IRC section 168(k) bonus depreciation provisions, the five-year NOL carryback provisions under IRC
section 172(b)(1)(H), the deferral of recognition of income
from discharge of certain business indebtedness under IRC
section 108(i), and the amount of the deduction allowed for
domestic production activities under IRC section 199 for
tax years beginning on or after January 1, 2010, and before
January 1, 2013.
Washington
Washington Gov. Jay Inslee (D) signed Engrossed Substitute SB 6138,71 which amended application of the state’s
B&O tax economic nexus standard and eliminated the
preferential tax rate for royalty income. ESSB 6138 eliminated the physical presence nexus standard as applied to
wholesaling activities and instead subjected those activities
to an economic nexus standard. ESSB 6138 also amended
Washington’s economic nexus standard so that a taxpayer
satisfying any one of the economic nexus bright-line thresholds in the immediately preceding tax year (as opposed to
those previously applicable in any tax year standard) will
have substantial nexus.
West Virginia
West Virginia Gov. Earl Ray Tomblin (D) signed HB
211572 to generally update West Virginia’s tax code to adopt
all amendments made to federal law after December 31,
2013, but before January 1, 2015, for state corporation net
income tax purposes to the same extent those changes are
allowed for federal income tax purposes, whether the
changes are retroactive or prospective. The law states that
‘‘with respect to tax years that began before January 1, 2016,
the law in effect for each of those years shall be fully
preserved as to that year except as otherwise provided.’’
Wisconsin
On July 12, 2015, Wisconsin Gov. Scott Walker (R)
signed SB 21,73 which contains numerous changes to the
state’s corporate tax law provisions. SB 21 modified the
qualification and computation of the manufacturing and
agriculture tax credit, as well as the calculations and definitions for Wisconsin’s R&D credit. The legislation also
created a new business development credit intended to
67
H 489, 2015 Leg. 1st Reg. Sess. (Vt., 2015).
HB 1400, 2015 Leg., 1st Reg. Sess. (Va., 2015).
69
SB 1142, 2015 Leg., 1st Reg. Sess. (Va., 2015).
70
SB 1044, 2015 Leg., 1st Reg. Sess. (Va., 2015).
68
State Tax Notes, October 5, 2015
71
ESSB 6138, 64th Leg., 3rd Spec. Sess. (Wash., 2015).
HB 2115, 82nd Leg., 1st Reg. Sess. (W.Va., 2015).
73
SB 21, 2015 Leg., 1st Reg. Sess. (Wis., 2015).
72
55
(C) Tax Analysts 2015. All rights reserved. Tax Analysts does not claim copyright in any public domain or third party content.
law that allows a claim for credit or refund of an overpayment that is attributable to a Utah net loss carryback or
carryforward as long as it is filed within three years from the
due date of the return for the tax year of the Utah net loss.
Under SB 1001, a credit or refund is also mandated if: (i) the
taxpayer and IRS agree to an extension, or a renewal of an
extension, of the period for proposing and assessing a deficiency in federal income tax for that tax year or there is a
change in or correction of federal taxable income for that tax
year; and (ii) the taxpayer files a claim for the credit or
refund before the expiration of the time period within which
the Utah State Tax Commission may assess a deficiency.
Apparently, the intent of this new law is to equalize the
periods for which the tax commission may assess additional
tax with the periods taxpayers may claim refunds.
Inside Deloitte
Conclusion
From a review of these corporate income tax law changes,
it appears that numerous states successfully tried to become
more ‘‘tax friendly’’ for businesses while others focused more
on decreasing budget shortfalls, with revenue-raising measures targeted at businesses. A handful of jurisdictions
achieved revenue-neutral yet significant tax reforms. Regardless of the state’s tax policy path, taxpayers should become
familiar with these tax law changes, as well as the underlying
legislative trends, to understand how their business organizations may be affected today and in the future.
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56
State Tax Notes, October 5, 2015
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promote job creation and retention in Wisconsin. Lastly, SB
21 updated references to the IRC as amended through
December 31, 2013, with certain exceptions, for state corporate tax purposes. One exception is Wisconsin’s continued decoupling from bonus depreciation rules under IRC
section 168(k).